The reasons behind the failure of Yahoo

After nearly five years as CEO at Yahoo, Marissa Mayer has resigned, walking away with $23 million in her pocket. Mayer stepped down from her role as the company finalized its deal with Verizon, which purchased the technology firm for a reported $4.5 billion this week. Mayer was celebrated as a progressive hire to turn the faltering internet giant around in 2012, with a focus on its core display advertising, email and financial products the priority as it continued to lose the battle for the search to her ex-employer Google. It still seems harsh today to blame Mayer for all of Yahoo’s failings. The company was in dire straits when she took over and would have taken a miraculous effort to get the company back to where it was during the dot-com boom. However, her record as CEO is riddled with missteps, from strategic to financial.

There is no one single reason that Yahoo “went wrong”, which I assume means that they aren’t seen as one of the top internet companies like they once were. There are product reasons, strategic reasons, and cultural reasons. Some top of mind examples though:

1. Focusing so much for years on Panama (Google Adwords competitor) and search in general, when they ended up losing to Google and eventually outsourcing this to Microsoft. 

2. Becoming too unfocused. Yahoo tried to do everything and triggered the famous Peanut Butter Manifesto from Brad Garlinghouse that summarized this problem well.

3. The shift from a desktop world where everyone used home pages to a mobile and social world. Yahoo failed to build their own successful mobile and social products or to acquire any. Yahoo got too bloated, and nobody would ever make the cuts needed to both headcount and its products/properties.

4. Buying Flickr, then letting it languish. Buying Flickr for $35 million was a bargain when you see how huge social photos are today. They could have turned Flickr into the next Facebook or Instagram and instead didn’t invest properly in it.

5. Failing to acquire Google and then Facebook. Yahoo had opportunities to buy both of these companies when it was clear they were going to be big successes and instead wouldn’t pay what was needed. For example, they had a deal to buy Facebook for $1.1 billion pretty much accepted, then Yahoo’s earnings came out and the value of the deal dropped to 800M due to stock compensation and Zuckerberg balked when Yahoo wouldn’t change the deal to put the price back up. Think about the value of Facebook today and that Yahoo didn’t acquire them over a $300M difference.

6. Leadership changes. Looking at companies like Google and Facebook you’ll see that the same leadership has essentially been in place the whole time. Yahoo has had a shifting cast of CEOs and executive teams that has never provided a longer-term vision and execution path to take shape.

7. Acceptance of lower quality employees. By the time I worked at Yahoo from 2007-2010, there were still a ton of great A-quality people there, but there were also a lot of B or C-quality people who were not outstanding at their work. This starts to eat away at the company and make the A-players go work elsewhere.

 

Yahoo started as a manually-constructed list of links to Web sites and aspired to be a media portal to the Web. The culture that developed at Yahoo apparently shortchanged engineering in the grand scheme of things (media people were viewed as more important). At Google, engineers were first-class citizens, so Google attracted top engineers and could be very selective in hiring. Over the years, Google (and later Facebook) assembled a greater brain and skill capital than Yahoo. Google started later than Yahoo and viewed the core challenge as an algorithmic problem – finding the best Web sites through automated indexing and real-time search, not manual indexing like Yahoo. So, Google relied on automation more, used a memorable, minimalistic interface that didn’t require daily maintenance, focused on a better-defined objective, and leapfrogged the competition. With a leaner operation, Google wasn’t hit as hard by the dot-com bubble bursting (the dot-bomb) as Yahoo. Facebook started much later, had a crisp goal, and also managed to attract great engineers, many from Google. Like Google, Facebook stayed lean for a while, remaining flexible and sensitive to what prospective customers wanted.

Lessons learned (for the long term)

1. focusing on one thing and becoming the best at it is important

2. effective automation beats manual labor

3. quality hiring and retention are important

4. lean operation helps to survive in a slow economy

Google’s obsession with infrastructure and its data-driven culture of self-improvement were prescient (Amazon is another example). Reliable and scalable infrastructure is very attractive to engineers – it improves the learning curve, avoids routine, provides valuable experience and helps to build resumes even when projects fail. It also makes possible acquisition more attractive to innovative companies that can leverage their technology at the Google scale. Google realized this advantage early and made a number of strategic acquisitions, such as YouTube, the team that developed the Android OS, and more recently DeepMind. In contrast, Yahoo wasn’t as successful in acquisitions and their integration, so missed many market opportunities.

Another lesson learned

planning and optimizing for the large-scale – data, processing, engineering, business, branding – ensure continuing innovation and helps capture new markets

 

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